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This Just In: Upgrades and Downgrades

Canaccord cans Dolby.

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

In "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we'll be tracking the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

And speaking of the best ...
It's been quite awhile since we've had the opportunity to review a high-profile pick by Canaccord Adams -- so many analysts, so little time, don't you know. But that opportunity presented itself yesterday, when the London-based analyst pulled its "buy" rating on Motley Fool Stock Advisor pick Dolby Labs (NYSE: DLB).

Despite praising Dolby as "well diversified and global in scope," Canaccord just can't shake the nagging suspicion that "weakness in PCs and consumer electronics" will hit Dolby's "fundamentals" and impair the stock's valuation. So while Canaccord isn't ready to sell just yet, it sounded the alarm against adding new money to Dolby.

Canaccord who?OK, that's an understandable reaction. Canaccord Adams is hardly a household name, but give these guys props. They called Dolby right back in August, and rode the stock to 20 points worth of market outperformance through yesterday's downgrade. Furthermore, as I noted when I profiled the firm back in September, "When it comes to high tech, Canaccord does a superb job of picking winners." See for yourself:

What's more, I have to take back what I said about Canaccord not being able to pick mining stocks. Turns out, the analyst was just a bit early -- but ultimately proven right -- on:

Company

Canaccord Adams Said:

CAPS Says (5 Max):

Canaccord Adams' Pick Beating S&P by:

Goldcorp (NYSE: GG)

Outperform

****

65 points

IAMGOLD (NYSE: IAG)

Outperform

****

30 points

(But it was still wrong on Cameco (NYSE: CCJ). That pick got closed out after six months, and a 17-point loss to the market.)

Foolish takeawayFor the record -- and I know I'm going to upset some Stock Advisor fans when I say this -- I believe Canaccord is also right on Dolby. Is it a superb company, earning operating profit margins roughly twice the size of its competitors? Yes. Does it enjoy market dominance in sound production? Sure. But is the stock overpriced? To that, I also answer: "Yes."

I could certainly be wrong about this -- analysts have consistently underestimated Dolby in the past. But the way I look at it, this is a case of "better safe than sorry." Dolby is more a stock to hold than to buy.

Dolby is a Stock Advisor recommendation. Garmin is also a Stock Advisor recommendation, as well as being one in Global Gains. Take a free 30-day trial to either newsletter to see what it's all about.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 788 out of more than 89,000 players. The Fool has a disclosure policy.

Author

I like things that go "boom." Sonic or otherwise, that means I tend to gravitate towards defense and aerospace stocks. But to tell the truth, over the course of a dozen years writing for The Motley Fool, I have covered -- and continue to cover -- everything from retailers to consumer goods stocks, and from tech to banks to insurers as well. Follow me on Twitter or Facebook for the most important developments in defense & aerospace news, and other great stories besides.